Demand and supply analysis

Demand for old HDB flats is reflected by the demand curve, which is an indication of the number of people willing and able to buy at particular prices. The supply curve of old HDB flats is thus an indication of the number of people who are willing and able to sell their HDB flats at the particular prices. For example, in the above diagram, the demand for old HDB flats is originally at DD, with equilibrium price at P and quantity at Q. An increase in demand from DD to D1D1, will, ceteris paribus, cause the equilibrium price to shift to Pl, and the equilibrium quantity to shift to Ql.

As can be seen, the price (though not to scale) has increased drastically. This is probably the case with Singapore. First, we shall examine the causes of such an increase in demand. One reason is the increase in population. Singapore’s population increased drastically in the 1950’s and 1960’s, mainly due to the high birthrate. These babies would have reached adulthood by the 70’s and 80’s, thus there would be an increase in demand when these baby boomers try to find a house of their own and set up a family.

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Also, there was a programme by the government to relocate the rural settlements, thus many families would have wanted to move to a HDB flat . And at the same time, with the increase in living standards, many occupiers of rental flats wanted to upgrade and buy a house of their own, thus contributing to the increase in demand. Relaxation of rules enabling permanent residents and singles (over a certain age) to own flats also encouraged further demand. The close substitutes of old HDB flats are new HDB flats, and, to a lesser extent, private housing.

The demand for new HDB flats and private housing has also risen drastically due to the population increase and increasing affluence, leading to higher prices. Thus, with the increase in the price of substitutes, the demand for old HDB flats has also increased. Furthermore, with the provision of new road facilities and amenities like schools and swimming complexes in some of these old estates, demand has increased. The recent HDB upgrading programme by the government to increase the value of such old HDB flats also caused a great surge in demand.

Secondly, we now examine why supply of old HDB flats has not increased much in relation to demand. That is not to say that the supply of old HDB flats has not increased ? it has merely increased very little compared to the upsurge in demand. The supply of old HDB flats is not determined by the number of government building projects, but rather it is determined by the number of people who are willing and able to sell their flats. The waiting time for new HDB flats is quite long, and private housing is expensive (especially so recently, with the crazy rise in property prices).

Hence, anyone who sells his flat might not be able to find alternative accommodation. Thus not that many want to sell their flats. The law stipulates that an occupant must stay in the flat for five years before selling it. Also, should he sell the flat to the open market, he must sell subsequent flats to the HDB at a lower price. Furthermore, if a seller sells his flat to the open market and subsequently buys a new flat from the HDB, he must pay a percentage (usually 10% to 20%) of the selling price of the previous flat to the HDB. These legal restrictions make it less lucrative for the sellers.

Also, most Singaporeans regard their flat, bought with CPF funds, as part of their nestegg. Some of them have not even finished their monthly installments, as most flats are bought with housing loans. And lastly, Singapore is a rather nice place to live in, and most people do not emigrate. Hence, those who want to sell their flats because of emigration are very few. Therefore, in land scarce Singapore, where housing has to compete with other alternative uses of land (like industries, golf courses, office blocks etc. ), it is little wonder that the price of old HDB flats has increased so much.